The current state of the Peerage
In 1999 hereditary peers lost their automatic right to sit in the House of Lords. Since that time the 1,115 hereditary peers have had the right to elect 118 of their number to sit in the Lords. This arrangement was agreed on by the Blair government as a compromise between those wishing to remove the hereditary element from the Parliament altogether and those wishing to retain the House of Lords as it was (not least the House of Lords itself, whose approval was necessary for any legislation). It is widely believed that if the Labour Party wins another term a further attempt will be made to remove all hereditary peers from the House.
This would remove the last of the peerage's constitutional functions, but would not amount to its abolition (as happened, for example, in Germany in 1918). The peerage would remain a legally recognised institution, its affairs regulated by royal officers such as Garter King of Arms and his equivalents in Scotland, Wales and Ireland.
The peerage is increasingly an anachronism in modern Britain. In the past 40 years, only three new hereditary peerages have been created, but two of these were conferred on men who had no heirs (George Thomas and William Whitelaw), and are now extinct. The only hereditary peerage created in recent times for someone who is not a member of the royal family that is still extant is the Earldom of Stockton, conferred on the former Prime Minister Harold Macmillan. In addition, the Dukedom of York and the Earldom of Wessex have been conferred on two members of the Royal Family (Prince Andrew and Prince Edward respectively).
Since the rate at which peerages are becoming extinct is much higher than this, and since it is unlikely that even a future Conservative government will resume the creation of hereditary peerages, the peerage will tend to decline numerically. A "closed" peerage will cease to be the pinnacle of social ambition for the business and professional classes that it was in the 18th, 19th and early 20th centuries. Furthermore, since the wealth of many peers has traditionally been based on land, and since "new money" is no longer able to enter the peerage, there will be an increasing disparity between the peerage and the real aristocracy of wealth and talent that it once represented. Thus, it is likely that the prestige of the peerage will be reduced, and therefore, some might call for its abolition.
See also: Royal and noble styles, Nobility.